Housing collapse continues

A first hand report has come in to my iceberg of someone who wants to buy a home, has a 20% downpayment, a good credit score, suitably large income, and... can't get a loan on the home he wants. It is, apparently, too far from the nearest fire hydrant and thus does not meet Fannie/Freddie or FHA requirements. And that's basically the only way you can get a home loan right now, because private home loan lending has basically ceased.

In some ways the current American situation looks a lot like the late Soviet Union. Oligarchs more interested in looting the treasury for their own benefit than in investing in the country's infrastructure, declining industrial output, crumbling highways and railroads and pipelines and refineries and electrical grid and pretty much everything else that makes a modern industrialized nation a modern industrialized nation... but that's what happens when a nation puts ideology ahead of practicality.

All these "isms" -- socialism, capitalism, communism -- are just so much nonsense, abstract drivel put together by people who are more interested in lofty ideas than in practicality. The only "ism" that has proven to work long-term is pragmatism. I.e., do what works. Don't do what doesn't work. So now we learn that deregulating financial markets doesn't work because traders look for their own short-term advantage rather than the long term welfare of the nation. Well duh. We found this out the hard way on October 29, 1929. But we as a nation came down with a bad case of the "isms" for the past thirty years or so and decided that hey, pragmatic reality wasn't the way to govern, some lofty unrealistic notion of "pure" capitalism was the way to govern. Well, that didn't work in 1929, and it *still* doesn't work today.

Regarding the bank bailouts, the basic problem we're running into there is that Paulson doesn't want to adhere to the Swedish Model. Sweden had the same housing crash / banking crash problem -- 15 years ago. They resolved it by nationalizing all the banks and installing government-appointed managers in all top offices, cleaning out the bad mortgages and actualizing the losses, auctioning all the properties that the banks had accumulated in order to end the blight on neighborhoods caused by vacant properties, and re-capitalizing the banks with freshly printed money from the Swedish treasury in exchange for the shares which they had nationalized. Once the banks were back up and operational and the real estate market had stabilized, Sweden then sold off its shares in the banks over the next ten years and now does not own any of its banks (other than the central bank), and indeed actually made a profit.

The problem is that this practical, pragmatic solution that the Swedes came up with conflicts with Paulson's "pure capitalism" ideology. Ideology is poison to practical governance. So Paulson is just handing out money to the banks, without sweeping in and taking them over and kicking out all the idiots who got the banks into this situation in the first place and straightening out the banks' books so that we know the true situation and can do what it takes to resolve the situation. It's a ridiculous situation and isn't doing a whole lot other than making a lot of investors very happy because the banks can now turn around and pay out dividends to those investors with Federal money. We're in a situation like the late Soviet Union, where the ideology has gotten so unrealistic and out of touch with reality that things are just falling apart and the apparatchniks refuse to consider any solution other than the ideologically correct one.

Maybe the new administration will take a more practical and pragmatic approach to the problems we're facing. That wouldn't take much doing, given how badly the current administration has performed at, well, just about everything. We'll just have to see. But my suspicion is that they'll get tangled in the "isms" too. What that means for the future... well. There is no longer a Soviet Union, y'know.

-- Badtux the Finance Penguin